A new policy at the Internal Revenue Service will make it much easier for many taxpayers to take write-offs for the business use of their homes.
Q. I caught the tail end of a report on the radio that said the Internal Revenue Service is changing the way taxpayers can take the home-office deduction. Do you have any details?
A. Sure. But it’s not really a change — it’s a streamlined alternative to the way the deduction has been claimed in the past.
Until now, anyone who wanted to claim the home-office deduction had to fill out the 43-line IRS Form 8829, “Expenses for Business Use of Your Home,” which easily can take an hour or two to complete. The new option will let taxpayers take a flat $5-per-square-foot deduction, up to a maximum of $1,500.
That works out to an office that’s as large as 300 square feet — ample room for most folks who work out of their home on a part-time or full-time basis.
The new option will be available for the 2013 tax return that you’ll file next year. Savvy homeowners will calculate the deduction using both the new method and the current one to see which will produce the largest amount of write-offs.
It’s important to note, though, that the IRS did not change the basic requirements that owners must meet in order to be eligible for the home-office deduction. One key is that the room still must be used “substantially and regularly” for business purposes: You can’t take the write-off if the room doubles as a spare bedroom, infant’s nursery or TV room.
Check with an accountant or similar tax specialist for details. Also get a free copy of IRS Publication 587, Business Use of Your Home, by calling the agency at (800) 829-3676 or downloading the document from its www.irs.gov website.
Q. We are buying our first home, and we followed your advice to make the offer contingent upon the property receiving a satisfactory report from a professional home inspector. Should the inspection be made before or after the lender’s appraisal?
A. It’s usually best to get the inspection first. That way, if the inspection turns up so many problems that you decide against going through with the deal, you can cancel the transaction and get your deposit back without wasting more cash on an appraisal and other services.
Q. In May we accepted an offer to sell our home for $199,500. The buyer had a certificate from a bank that said she was qualified to borrow up to $220,000, which would be more than enough to complete the transaction. Last week, the buyer notified us that she is canceling the sale because the bank will no longer give her the loan that she was promised. Can we sue the buyer or the bank for misrepresentation or fraud?
A. You could sue both the buyer and the bank for misrepresentation, or anything else you wish, but you probably would not win.
Smart buyers always get “preapproved” for a loan. The lender they choose typically issues a letter, certificate or card that says they’re able to borrow a certain amount of money — in this case, $220,000.
If you read the fine print, however, you’ll see that most pre-approval documents or cards specifically say that the lender is not obligated to issue a mortgage for the stated amount. Banks can cancel a pre-approval for any number of reasons, ranging from a below-market appraisal to even the most modest of downgrades to the applicant’s credit rating.
Your letter doesn’t state why the bank suddenly yanked the buyer’s loan approval. But assuming that the purchase offer you accepted included a standard contingency stating that the buyer isn’t obligated to complete the transaction if she can’t get suitable financing, you have little choice but to cancel the sale and return her deposit.
Filing a lawsuit against the buyer likely would be both time-consuming and fruitless, unless you could show that she purposely set out to defraud either you or the bank. Filing suit against the lender would be even more of a long shot, for its highly paid lawyers surely would be able to prove that the bank had a good reason to cancel the applicant’s earlier loan approval and therefore cannot be held liable for the home sale that fell apart.
I’m sorry, but your best move now would be to agree to terminate the sale, return the buyer’s deposit and put your home back on the market again. It might be a hassle, but it’s a better alternative than tying up your property for months by filing a costly and time-consuming lawsuit that you almost certainly will not win.
Real estate trivia: “Beautiful” is the single most popular term used in for-sale advertisements, according to a nationwide study by listings aggregator Point2homes.com, followed by “hardwood floors” and “stainless-steel appliances.”
Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.
© 2013, Cowles Syndicate Inc.Copyright © 2013 Paddock Publications, Inc. All rights reserved.